Consumers are Opening Their Wallets, But for Cars, Not Jeans

Challenges persisted for apparel retailers in August as shoppers continued to stay away from malls, though consumers appeared to be opening their wallets for bigger-ticket items, such as furniture, automobiles and building supplies.

Same-store sales–for the few companies that still report monthly results–came in slightly below expectations, which had been lowered in recent weeks thanks to a number of downbeat forecasts.

A bright spot was Costco, which reported August same-store sales rose 5%, excluding gasoline, compared to last year’s August, beating expectations for 3.5% growth. Among the stronger performing categories were small appliances, apparel, jewelry, health and beauty, and office, while same-store sales for consumer electronics were slightly negative.

Retailers’ sales reports came a day after auto makers indicated new car buyers snapped up vehicles last month at a pace not seen since before the financial crisis, suggesting that consumers seem willing to spend on a car, if not a new pair of jeans.

In addition to the auto sales data, Ken Perkins from Retail Metrics noted the 31% jump in August same-store sales posted by home-appliances retailer Conn's Inc. on Thursday offers further evidence of a shift in consumer spending away from apparel and towards big-ticket items.

Plus, home-improvement-products retailers Home Depot and Lowe's last month reported solid second-quarter results and raised their year views, continuing to benefit from an improving housing market.

“The pent-up demand is in the home sector, so that’s where some of the money was going,” said Barbara Kahn, director of the Jay H. Baker Retailing Center at the University of Pennsylvania’s Wharton School.

Meanwhile, several retailers–including department stores like Macy's and Kohl's–have lowered their fiscal-year outlooks in recent weeks.

Those retailers are facing several challenges as they move into the end of the back-to-school season and start to rev up for the all-important holiday period. Mall traffic remains weak, promotional activity is still high, and apparel retailers in particular are facing difficult comparisons following last year’s strong back-to-school season.

And given that a retailer’s performance during the back-to-school season is typically an indicator of holiday performance, this year’s sluggish August raises concerns about apparel retailers’ prospects for November and December.

The nine retailers tracked by Thomson Reuters reported 2.9% growth in August same-store sales. This compares with analysts’ expectations for 3.2% growth and with 6.5% growth a year earlier.

Many retailers, including the major department stores, have stopped reporting monthly results over the past year, making it more difficult to gauge the performance of the entire industry.

Gap reported a 2% rise in August same-store sales, shy of the 2.2% growth that was expected. Gap stores posted a 2% rise versus the 2.8% estimate, while Banana Republic’s same-store sales grew 2%, compared with expectations for a 0.4% decline. Old Navy recorded a 1% rise in same-store sales, while expectations were for a 1.3% increase.

Regional discounter Fred’s same-store sales were flat, in line with expectations. Sales were hurt by an unfavorable calendar shift, Chief Executive Bruce Efird said, adding that several departments still performed well, including pharmacy, hometown auto and hardware, pet, lawn and garden, and most consumable product departments.